Power Struggle: NTPC’s legacy PPAs keep tariffs high

Even as over 40,000 MW of private power plants are stressed for want of power purchase agreements (PPA), state-run NTPC is busy adding new capacities at high capital costs. This is thanks to a strong legacy of PPAs executed before 2011 under the erstwhile cost-plus system. Since the capital costs of many of NTPC’s upcoming generation units are much higher than the industry average of Rs 6.5 crore/MW — even Rs 9 crore/MW in case of Bongaigaon unit in Assam —, consumers may need to brace for high tariffs. While PPAs for about 73% of NTPC’s 13,100 MW coal-based under-construction capacity were signed before 2011, more than 8,000 MW of commissioned private power plants are currently stressed due to lack of assured markets via PPAs.

NTPC acquired its privileged status by signing several PPAs on a ‘cost plus’ basis, before it became mandatory for power generators to discover electricity tariffs through competitive bidding. Just before the January 2011 deadline for shifting to competitive bidding regime, the company had tied up PPAs for a huge 40,840 MW. While bulk of these capacities have been built, 7,500 MW is now under construction. Private players had complained to the Central Electricity Regulatory Commission (CERC) that PPAs were signed by NTPC in a hurry “with a clear intention of bypassing the impending competitive bidding requirements”. According to Ashok Khurana, director-general, Association of Power Producers (APP), since NTPC bears no risk from its projects covered under the cost-plus mechanism, the situation is adversely affecting private power players who are in dire need of PPAs. NTPC’s inefficiencies are also bleeding the discoms, considered as the weakest link in the power chain, he noted.

A brief comparison would reveal why NTPC’s advantage is at the industry’s cost. While Bihar’s power regulator approved a tariff of Rs 4.96/unit for the state utility to procure power from NTPC’s Barh plant in FY18, the utility would pay GMR Kamalanga Rs 3.17/unit in the same period. Similarly, while the average rate of power purchase in Assam was Rs 4.49/unit in FY16, the state was buying power from NTPC’s Bongaigaon unit at Rs 5.33/unit. Also, Chhattisgarh was buying electricity from NTPC’s Mauda plant at Rs 5.94/unit in FY16, while the approved power purchase cost from private power players was Rs 2.99/unit. The average cost at which states buy power from non-renewable sources is Rs 3.53/unit.

NTPC had earlier refuted the allegations about cost-plus tariffs being higher than auction discovered prices, arguing that the tariffs were fixed by the CERC on the basis of designated norms. Analysts FE spoke to have also pointed out that though tariffs discovered through bidding are initially lower than the NTPC’s, there have been several instances of bidding conditions being changed later and the PPA-agreed tariffs getting inflated. On its part, the CERC had rejected the contentions raised by private power players and ruled in 2013 that all the PPAs signed by NTPC before January 2011 were in compliance with the relevant terms and conditions.